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Despite the talk about the economic problems the United States has been having over the past four years there really hasn’t been a recession. Sure growth has slowed but it still has been chugging along at 2-4%, which is fairly healthy considering the tech wreck, war, terrorism and everything else.

Why are modern economies so stable?

Geoffrey Colvin at Fortune magazine believes it is due to our increasing mastery of the supply chain:

“Services and information account for most of the developed world's economy by far, and capacity has become a concept we scarcely think about. No one ever fretted that Microsoft couldn't turn out copies of Windows NT fast enough. Of course we still need physical goods, but infotech has revolutionized that sector of the economy too, turning supply chains into smoothly flowing rivers that almost never flood or dry up, eternally delivering exactly what's needed, exactly where it's needed, exactly when it's needed.

In a friction-free economy like that, where everybody knows everything, it's tough to make money. But the good news is, that kind of economy spins like a top, rarely tripped up by the old-fashioned excesses and shortages that used to trigger boom-and-bust cycles. It takes a lot of hubris to claim that we've conquered the business cycle, but we can safely say we've come close. In the past 22 years we've had just two recessions, and even those were pathetically weak exemplars of their breed. It is legitimately a new era.”

However there is a problem. China that new factor in all things economic is looming large on the horizon.

"...what happens when a Third World nation develops First World demand? Here's a country that's nowhere near an info-based economy, where supply chains get managed by phone and by fax if they get managed at all, where GDP per capita is just $4,700 (vs. $34,000 in the U.S.). It's still a baby among the world's economies—only one-seventh of global GDP—yet it has the appetite of a 19-year-old defensive tackle. Last year China consumed half of the world's cement output, one-third of the steel, one-fourth of the copper, one-fifth of the aluminum.
Result: The price of steel rocketed earlier this year, and some suppliers put customers on allocation. Ditto for copper and aluminum. Some contractors in Florida can't get cement at all. Nothing like that has happened in ages.

The ramifications are multi-tiered. For example, despite China's huge consumption of cement, the world actually seems to have enough of it. The problem is that there aren't enough ships to bring it to the U.S. Reason: Many of them are tied up bringing raw materials such as iron ore to China, then waiting weeks to unload at congested Chinese ports. One solution is to build more ships. But ships are made of steel, which the shipbuilders can't get because of Chinese demand.

A critical trait of old-economy goods like metals, cement, and oil is that ramping up capacity takes years, not months. In response to record-high prices, that new capacity is getting built right now. But at the same time China is braking its hypergrowth—which means that two years from now, when all that new commodity capacity starts churning out stuff, China may not want it anymore. So with China running on a primitive info infrastructure, large parts of the interconnected world economy could be back to boom-and-bust cycles and inventory recessions every three years—headaches we thought we'd left far behind."

Having lived through the recessions of 81 and 90 I don’t find that particularly comforting.